‘All state govts should implement MSME Development Act’

The Confederation of Indian Industry (CII) has over 5,700 members from the MSME sector. MSMEs sub-committee chairman (southern region) KKM Kutty spoke to FE?s Joseph Vackayil on CII initiatives and plans to make the MSMEs world-class through innovation and diversification. CII targets creation of a globally competitive small sector that need not depend on government subsidy or reservation to survive and excel. Excerpts:-

•It is said that MSME sector is the engine of economic growth and the backbone of the Indian economy, please substantiate.

The MSME sector that employs over 31 million people represents 95% of the industrial units in the country, 50% of industrial output and 42% of total exports. About 40% of the value addition in manufacturing is by the small sector. They play key role in the equitable distribution of resources and help balanced regional growth. They contribute 6.81% to GDP.

•What is the impact of the global meltdown and recession on this sector?

The recession in domestic and global demand, especially in the automobile, FMCG, housing and real estate sectors, and slow down in capital expenditure, have brought down production by 40% to 60% and caused piling up of inventories. This has led to severe financial crunch. Payments are delayed by the large corporate hitting cash flow and liquidity. This situation has made the banks and non- banking financial institutions wary of lending to MSMEs.

•What immediate help could be extended to the MSMEs at this juncture?

All the state governments should implement the MSME Development Act. The banks and financial institutions should be more lenient and dilute norms for collateral requirement or working capital norms. Repayments could be staggered. There should also be an exit route. The concept of credit rating should be popularised and the banks should give due weightage to the rated enterprises. VAT registration or SSI registration should be considered as valid document to participate in government tenders.

•What would be the long-term strategy that CII would suggest for the MSMEs to tackle the present recession and similar situations in future?

Most of the MSMEs operate with single product and single customer. The recession has shown how vulnerable any such unit could be. We from CII have appealed to the MSMEs to diversify products and identify alternative avenues of business and increase customer base. They should set long-term goals and enhance internal competitiveness through adoption of quality management systems. They should also make maximum use of the government schemes to support them.

•These are very common remedies and better said than done. Is there any specific programme for CII that could be adopted by a single unit or group of units that would help them become world-class and competent to be a vendor to any Indian or foreign company facing global competition.

This is the long-term vision of CII. It wants to be catalyst of industrial innovations for the MSMEs. To begin with, CII southern region has chalked out a four-pronged action plan that could be implemented, as you have asked, individually or in groups. They are: ?FinExe 2009?, an initiative for excellence in finance, ?M-Leap? , market linkage for excellence and progress; ?ICEP?, internal competitiveness enhancement programme and ?Webinars?, online membership engagement platform. For each of these we have defined the objective, the methodology ad scope, and drawn up specific implementation plan.

•What proposals and programmes would come under FinExe 2009?

It is an initiative to encourage better financial management, to make the small-scale entrepreneurs understand the business valuation and rating process, realise the funding gaps and find out possible sources of credit, especially the schemes of the state or central governments or banks and financial institutions for them. It also aims at addressing taxation and foreign exchange related issues. We have identified several methods of empowering the SSIs to achieve financial excellence. They include conducting workshops on ?financing MSMEs- the way forward?, arranging for one-on-one interaction with banks and financial institutions, consultants, rating agencies, government officials on all aspects of finance and taxation and export incentives and control norms. We are planning about 20 programmes in the tier-II and tier- III cities this year and reach at least 2000 MSMEs in the South and establish partnership for resources with banks, rating agencies, government departments, tax consultants and also other affiliated associations.

•What does CII plan to do to have better market linkages for MSMEs?

The market of the MSMEs are wide ranging from the local to the central government agencies, the public sector, national corporates and the multinational companies. We intent to empower the SSIs on all the aspects of marketing to these customers and their needs. The small units will be enabled to participate in government procurement programmes, to supply to PSUs and large corporates. We will help them through workshops and business development conferences with diverse buyers from all sectors and arrange B2B meetings with visiting foreign trade delegations.

•How will CII help MSMEs excel in competitiveness?

It is an area in which CII has found success through its cluster programme. In 2008-09 93 MSMEs witnessed overall savings of Rs 70 crore through this programme. Clusters can be sectoral, geographical or comprising OEM suppliers. A group of 10 or 12 companies are brought together to work with CII for enhanced competitiveness. They learn by sharing, and allowing group dynamics to work. We have found that for the participants, productivity has gone up to 1.5 to two times and cost reduced by 20%. Factories become accident-free, absenteeism came down, cash flow improved and value addition per employee increased substantially, all with the introduction of the cluster pfrogramme. During 2009-10 we are planning to develop 15 new clusters in the southern states.

•What are the programmes planned under ?webinars?

Webinars are websemianrs aimed to exploit the power of IT to the maximum. Online interactive sessions are planned on various topics like cost management, energy management, logistics etc.